Economic value of water in the manufacturing industry of Yazd Province: Value of marginal product approach

The optimal allocation of water is importance because Yazd province has very limited access to water resources. The optimal allocation requires that the water price be approximately equal to its economic value. Accordingly, the present paper calculated the economic value of water consumed by manufacturing industries in Yazd province. The Cobb-Douglas, transcendental, translog, generalized quadratic, and Leontief production functions were estimated using panel data method for 11 industries during the period 1996-2015. The findings shown that water tariff is much lower than value of marginal product of water in all 11 industrial activities in Yazd province. Then first, the firms obtain excess benefits as rent which is unfair. It leads to develop water-intensive and relatively less labor-intensive industries. Second, it would be rational to consume too much water, to use outdated technology, and even to postpone structural reforms. Therefore, price liberalization policy aims to improve justice, efficiency, and comparative advantage.